Ireland is third largest tax haven for US companies says new report

Computer giant Apple accused of using offshore operations in Ireland to avoid as high as $25 billion in US taxes.

New research has identified Ireland as the third biggest tax haven in the world for US profits.
The Sunday Times reports on the findings of a survey conducted by a professor at Dublin’s Trinity College.

A paper on effective corporate tax rates in Ireland by senior finance lecturer Jim Stewart claims American companies in Ireland paid tax of 4.2% on more than $100bn of net profits in 2008.

The report says Stewart lists Ireland as one of six countries in the world ‘with tax haven/low-tax features’ which account for more than 60% of global US profits.

The Netherlands and Luxembourg top the list with Bermuda, Switzerland and the British Caribbean islands below Ireland.

Claims made at a US Senate committee hearing that Ireland acts as a tax haven for Apple were denied last week by the Irish government.

Irish Prime Minister and his deputy Eamon Gilmore claimed that Ireland’s corporation tax rate of 12.5 per cent is ‘statute based’ and no individual companies had negotiated special lower rates.

Apple executives told the US Senate committee that Ireland calculated its tax liability ‘in such a way as to produce an effective rate’ of about 2 per cent since 2003.

Stewart’s paper was completed last month and is due to be published shortly.

The Sunday Times reports on his claims that Ireland’s effective corporate tax rate is much lower than 12.5 per cent.

He disputes oft-quoted research by PWC, an accounting firm, which claims the effective rate of corporation tax in Ireland is 11.9 per cent while in France it is 8.2 per cent.

Stewart says: “This study is based not on real data, but on a standard firm with 60 employees, a standard size, and a fixed gross profit margin of 20%.

“It does not look at, for example, how a newly incorporated entity in Ireland is exempt from corporation tax for the first three years, and does not allow for any investment incentives or benefits apart from the age and size of the company.”

The paper adds that Stewart cites data produced by the US Bureau of Economic Analysis (BEA) relating to American companies operating abroad which he says ‘shows a very different picture’ from the PWC report.

His study says this shows an effective rate of tax of 4.2 per cent in Ireland, compared with 26.8 per cent in France. The nominal rate in France is 33.3 per cent.

American companies in Ireland filed a net income of over $100billion in 2008 but paid just over $4billion in tax.

Stewart adds: “It is regular practice for big companies to negotiate with the Irish government over what are defined as taxable profits.

“Changes in tax law happen all the time because Ireland prides itself on being responsive to business needs. Apple did a big reorganisation of its company around 2005 and as part of that it would have had to renegotiate its tax liability with Revenue.

“The definition of ‘taxable profits’ can be changed. Apple will pay the full 12.5% on its taxable profits but the effective rate would be well below that.”

Ireland’s junior Finance Minister Brian Hayes has rejected Stewart’s research and claimed that Apple’s calculation of a 2% effective corporate tax rate is based on gross profits divided by its Irish tax take.

Hayes said: “It’s been grossly unfair, but as a small country you can sometimes get caught in the headlights. This is a global issue, not one for Ireland exclusively.”